Quattrone II: A Lawyer Blows Up

The U.S. government rested its case against investment banking superstar
Frank
Quattrone
Frank Quattrone
today by offering the most damaging evidence against him: Quattrone's own words uttered at his first obstruction of justice trial, which ended with a hung jury.

Quattrone's case now being tried in a Manhattan federal court went south from there. First, U.S. District Judge Richard Owen angrily rejected defense lawyer motions, at one point nearly throwing a document back in the lawyer's face. Then, the first defense witness--one of Quattrone's lawyers-- wound up bolstering the case against him.

This morning, prosecutors read large portions of Quattrone's testimony from his first trial on obstruction of justice charges. (The jury was told it was from an unspecified proceeding.) In that testimony, Quattrone admitted, after seeming at first to deny, that he influenced the allocation of extremely lucrative initial public offering shares, and that those allocations were used as part of a strategy to steer future investment banking business to Credit Suisse First Boston, where Quattrone headed the technology group.

In that testimony, Quattrone was shown a series of e-mails in which he discussed who should be favored in the allocation process.
Michael
Dell
Michael Dell
, chairman of
Dell
, in particular, asked for Quattrone's help in securing a large block of shares in one extremely hot IPO,
Corvis
. Quattrone agreed to put in a good word, as Dell's associates suggested Quattrone might be their "go to" banker in future deals. (Corvis, by the way, went public at $36 per share, raising $1.1 billion. The shares opened at $74, an immediate 105% pop, and traded as high as $114. They now sell for less than $2, a fact the jury did not learn.)

Quattrone also admitted that the tech private client services group, a retail sales force that reported partly to him, had negotiated the right to a 2%-to-4% share of all tech IPOs. In early 2000, his associates were asking Quattrone to help them get more shares. That way, they would not be forced "to Morgan them" or "Goldman them." Asked what this meant, Quattrone first quibbled with the question. Finally he conceded that the e-mails meant that the tech sales force wanted more shares, so they could allocate more to technology executives than did key rivals
Morgan Stanley
and
Goldman Sachs
. "If you read [the e-mails] carefully, you can and I do [make that inference]," Quattrone said.

This testimony in the first trial raised the issue of Quattrone's credibility in the first trial. But it also goes to the heart of his defense: that he was not involved in share allocations, which he said were the province of other departments, so he would have no reason to impede an investigation focusing on allocations. The evidence also showed Quattrone using allocations to court fellow power brokers in Silicon Valley, the so-called Friends of Frank.

On redirect examination, Quattrone's lawyers had him say that he might have "participated" in allocations "on rare occasions," but that he made no "decisions." This distinction may be lost--as anyone who works in a large organization knows, when a big boss makes a "suggestion," underlings are generally eager to please.

After the government rested, John Keker, the lead attorney in Quattrone's seven-lawyer legal team, offered Owen a document purporting to list all the evidence that had been excluded in the course of the trial. Owen did not like the submission. In fact, he hated it, demanding to know why he should reconsider evidence he had already rejected, or worse, evidence that was never submitted. Keker struggled to explain, but the judge was not happy, telling the famed San Francisco lawyer, "Come on, you know how to try a case."

After that motion, Keker made another, this time for an acquittal, and introduced another lawyer, Jonathan Bach, to make the argument, such motions being generally hopeless in any event. But Owen was not interested in hearing Bach. Instead he asked lead prosecutor Steven Peikin to marshal the reasons that the government had made a case good enough to go to a jury. Peikin did so easily and the judge announced, "The motion is denied in its entirety." Bach never said a word.

After a lunch break, the defense called its first witness, Richard Char, the man who sent the "clean out the files" e-mail that Quattrone seconded, leading to his indictment. But Char could not be found around the courtroom, forcing Quattrone's team to call its second witness, Adrian Dollard.

Dollard was (and is) a lawyer in CSFB's Palo Alto, Calif., office, where Quattrone was based. The portly native New Yorker was called to testify on two points. The first, which no one disputes, is that the CSFB legal department had not sent out a general document retention notice at the time Quattrone sent his e-mail on Dec. 5, 2000 (see: "The Case Against Credit Suisse"). Second, he was to defuse earlier testimony by CSFB general counsel Gary Lynch, who said that Quattrone told him in January 2003 he did not know about a pending grand jury subpoena at that time. Quattrone's statement was either a lie, as prosecutors say, or a mistake, as the defense contends.

Dollard was one of eight lawyers who helped prepare Quattrone to testify in an unrelated matter in September 2002. When Quattrone was cross-examined in that instance, he was asked about his Dec. 5 e-mail, which no one had shown him in his full week of preparation. Later he told Dollard the e-mail had slipped his mind, and Dollard reminded him that there were other e-mails soon after that countermanded it.

Dollard later retrieved copies of the related e-mails sent a day before and days after and showed them to Quattrone. But the documents he collected did not include the Dec. 3 e-mails from David Brodsky, a senior CSFB lawyer, informing Quattrone about the grand jury.

The banker's lawyers now say that Quattrone misspoke, his memory having been incorrectly refreshed by Dollard.

Peikin then stated his intention to cross-examine Dollard with the events surrounding Quattrone's suspension by CSFB in January 2003, which was caused in part by his perceived lie to Lynch. Keker rose in protest, furious, saying any mention of the suspension would be not just wrong, but "reversible error." After the lawyers huddled among themselves, a compromise was reached and the hapless Dollard retook the stand.

In February 2003, Lynch and Stephen Volk, CSFB's chairman, called Dollard as part of their investigation of Quattrone, Dollard testified. They brought up the Brodsky e-mails, which were news to Dollard. But Dollard never told them about how, just two months earlier, he had confused Quattrone, he admitted. On redirect, Dollard said no one asked him for his view.

Still the impression was left that Quattrone had a lawyer on the witness stand gilding the lily. Lynch's testimony, a minor point, had become a major embarrassment. Quattrone's legal team had taken its first foot forward and wound up two steps back.